How Does Amazon Use Big Data?
How does Amazon use big data to improve their ecommerce business? The answer is rather simple. The company has long been a pioneer in e-commerce, but at the same time is one of the earliest adopters of online retailing. In 2004, Amazon began using complex and sophisticated mathematical algorithms to analyze the buying habits of their customers.
This enabled them to build up a detailed picture of what products people were searching for online, when they were shopping, what locations they often visited and the types of devices they used to buy their goods. The resulting information was then fed into massive databases that Amazon uses to constantly refine its retail web site. Today, this information is being used to provide recommendations on where to improve the customer experience and to ensure that they return to the site for more savings and for new purchases. The resulting product mix is far more favorable than what may have been available from traditional retail stores.
The approach used by Amazon to analyze customer buying habits is also a relatively new development compared to other companies that have long looked to data to support their business models. Other companies have used such methods as retail optimization or Web analytics, but none has leveraged big data to improve customer service or product selection. Amazon’s success with Ecommerce has come from using the data to not only find new ways to increase revenue but to reduce losses as well. In fact, it is now possible to use Amazon’s Web Retail Insights tool to analyze customer behavior and retail performance.
As an ecommerce company, Amazon uses data to make smart choices about what products to sell and which items should be placed in its online auction stores. Data is key in determining how to price its products to compete in the highly competitive ecommerce market. It is equally important to the consumer who makes the online purchase. If an item is too high priced, the consumer may simply search for another item that is lower in price. But if the item is priced too low, no one will likely consider purchasing the item even though it may be a better product. Amazon has used this understanding to create its own ecommerce tools called the Amazon Ecommerce Keyword Tool and the Amazon Auto Ascertain Shopping Guide.
Both of these data tools are essentially web-based applications that help the company with its ecommerce efforts. They allow ecommerce merchants to gather and organize large amounts of data about its customers, allowing the merchant to make smart buying decisions. The Keyword Tool can be used to conduct keyword research, allowing the merchant to understand what types of products are popular among its customers. The Auto Ascertain Shopping Guide can determine the cost per sale and profitability of any given product category, allowing the ecommerce merchant to determine whether or not it should offer certain products or whether it should pass on those items to other customers.
This combination of tools provides the ecommerce merchant with an edge on the competition. Its customers now have more access to and can better appreciate and make better buying decisions. By using big data to understand the preferences of its customers, Amazon has been able to improve the customer experience and increase conversion rates. Its customers can tell when an item is either overpriced or underpriced. They can also provide feedback that makes the retailer adopt better strategies, such as carrying items with different prices or extending minimum purchase amounts.
Of course, these same technologies and tools are available for free to any business that wants to embrace ecommerce. Amazon’s approach, however, goes beyond basic freebies and goes beyond simple collecting of information. It understands that its success depends largely on its ability to use its massive database of ecommerce customers to make smarter buying decisions. That is why it has developed tools that allow even small businesses to take advantage of its wealth of information.
And with all of its readily available data, Amazon has a ready response whenever another business opportunity arises. It is not surprising that many smaller companies have not yet fully recognized the full advantages of using big data for their advantage. In fact, many have already taken up the Amazon approach by buying tools such as Big Datapring or Zencart. When they see that Amazon can easily help their businesses, many will finally realize that using big data can be the key to ecommerce success.